Brookdale Senior Living inc (BKD) Q2 2021 Earnings Call Transcript

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Brookdale Senior Living inc (BKD -2.60%)
Q2 2021 Earnings Call
Aug 6, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Kathy MacDonald -- Senior Vice President of Investor Relations

Good morning. This is Kathy MacDonald. I'm very sorry for the technical delay. Thank you for joining us. And welcome to the Second Quarter 2021 Earnings Call for Brookdale Senior Living. Joining us today are Cindy Baier, our President and Chief Executive Officer; and Steve Swain, our Executive Vice President and Chief Financial Officer.

All statements today, which are not historical facts, may be deemed to be forward-looking statements within the meaning of the federal securities laws. These statements are made as of today's date, and we expressly disclaim any obligation to update these statements in the future. Actual results and performance may differ materially from forward-looking statements. Certain of the factors that could cause actual results to differ are detailed in the earnings release we issued yesterday as well as in the reports we file with the SEC from time to time, including the risk factors contained in our Annual Report on Form 10-K and quarterly reports on Form 10-Q. I direct you to the release for the full Safe Harbor statement. Also, please note that during this call, we will present our non-GAAP financial measures. For reconciliations of our non-GAAP measure from the most comparable GAAP measure, I direct you to the release and supplemental information, which may be found at brookdale.com/investor and was furnished on an 8-K yesterday.

Now, I will turn the call over to Cindy.

Cindy Baier -- President & Chief Executive Officer

Thank you, Kathy. Good morning to all of our shareholders, analysts and other participants. I hope that you and those you care about are safe and sound. Welcome to our second quarter 2021 earnings call. The COVID-19 pandemic continues to demonstrate Brookdale's versatility and resilience, and those attributes are proving critical as we continue to win the recovery and help save lives. As the economy reopen and our entire industry is in a lease-up mode. We are operating in an intense and dynamic environment.

We will continue to build on and refine our plans to position Brookdale for long-term success. We've made great progress this year to capitalize on the opportunities. I am pleased to report that we have delivered five consecutive months of occupancy growth. The June month end occupancy showed a significant step up, which led to an even stronger July occupancy results. The work has been hard and has placed tremendous demands on our associates. The tenacity of our team members at the communities with the diligence of our regional and corporate associates has helped protect the health and wellbeing of our residents throughout the pandemic and accelerated the COVID-19 vaccination process so that we can reopen our communities more quickly and with appropriate safety protocol. Thanks to our hard work. The initial phases of recovery occurred earlier than expected and we have been able to stay focused on achieving our growth objectives.

As of July 1, we further strengthened our liquidity position by over $300 million when we completed the 80% fail and smooth transition of our home health, hospice and outpatient therapy business to HCA Healthcare. We are pleased with this value enhancing transaction and that high quality healthcare services continue to be available to our residents. Brookdale's residents will benefit from a seamless offering of services across a broad care continuum. The transaction represents the latest step in our ongoing efforts to drive meaningful shareholder value, significantly improving our liquidity, while positioning our core senior housing operation for sustained growth. At the beginning of the year, I introduced three growth pillars in our plan to put the pandemic behind us. The first pillar, our vaccine clinic strategy is largely complete. I believe our success with hosting over 2,000 vaccine clinics in four months enabled us to accelerate opening our communities and our occupancy recovery.

We remain diligent in helping protect our communities, residents, and associates, especially in light of the delta variant. We continue to meet with the CDC state and local health officials to help ensure we stay informed of new developments and best practices and implement effective protocols in support of the wellbeing of our residents and associates. Our ongoing efforts are a testament to our expertise and how helping people with the challenges of aging is one of our core strengths. The second pillar was to sharpen our business edge through sales transformation. As part of our win locally strategy, we have refocused our attention on local outreach engagement. In addition, during the second quarter, we strategically and opportunistically allocated marketing dollars to particular areas, which is delivering strong returns in our leads. Taken together, we believe this help us achieve occupancy gains that's outpaced the industry. We are pleased with the sequential improvement in leads as well as our ability to convert leads to move in, particularly in assisted living and memory care.

The third strategic pillar we announced was a better capitalized on the higher concentration of our portfolio in assisted living and memory care. In addition, we wanted to better capitalize on our demonstrated leadership position for our residents and prospects. We are well-equipped to serve appropriate residents with complex medical condition. We also have industry-leading customer satisfaction evidenced most recently by our J.D. Power Award for Assisted Living and Memory Care Communities for ranking highest in customer satisfaction. Our success with this pillar can be seen in our sequential occupancy growth in the assisted living, memory care segment, which is approximately 70% of our portfolio today. The outside recovery in our memory care portfolio is particularly notable. The successful execution of these three strategies means that we are ideally positioned to benefit from the broader recovery.

Let me turn to our financial highlights for the second quarter. The industry as reported by Nick show that the second quarter senior housing occupancy increased approximately 10 basis points on a sequential basis for stabilized portfolio. We are pleased Brookdale's occupancy growth significantly faster on a same community basis. During each month within the quarter, our move-ins accelerated of note our same community June move-in volume with the strongest since August 2019. This is particularly positive and see happening in the second quarter since our strongest occupancy growth historically occurs in the third quarter. For the second quarter on a same community basis, our senior housing occupancy grew to 90 basis points with assisted living and memory care occupancy increasing even faster at a 110 basis points on a sequential basis. Sequentially, our independent living occupancy percentage was relatively flat for the quarter. We were pleased however, to see occupancy turn positive in May and accelerate in June.

I am proud that we were able to continue managing and maintaining overall rate discipline. While we've seen some competitors with the-within the industry use significant discounts during this pandemic related lease up period, our dynamic pricing strategy is working. By focusing on both price discipline and occupancy growth, we believe we will achieve a better sustainable result.

Turning to operating expenses. Senior housing expenses were slightly lower on a sequential basis. When you bifurcate the key elements of opex, the favorability was a reduction in COVID-19 related expenses, the correspond with a significant drop in cases in our communities. As expected, the expense increase was mainly labor related along with slightly higher incremental marketing investments. I want to address labor since our core Brookdale's business depends on people taking care of people. While the general population is worn out from the challenges of the pandemic those who have been vaccinated are returning to life's normal routines. However, Brookdale's everyday heroes remained on the frontline. Our community associates continue to incorporate enhanced protocol to help protect against COVID-19 since our industry helps protect the population that is most vulnerable to this virus due to age and chronic condition.

With the exception of the industry being in lease-up mode, I believe the largest current pressure on the industry is related to labor. We must ensure that the senior living industry continues to be an attractive place for associates to fulfill their purpose, earn competitive compensation and benefit, and grow professionally. With today's intensely competitive environment, we increased our recruiting efforts to fill open positions and actively adjusted wages to remain competitive in the market.

Our goal is to ensure that our communities continue to be staffed with full and part-time associates. When we have openings, however, we use contract labor and overtime, which can be expensive. While we feel this near-term pressure, we also believe the environment will improve. In states that ended the enhanced weekly unemployment payments, there has been a recent drop in unemployment claims. As more people return to the workforce and through our extensive internal effort, we expect that our labor costs will stabilize later this year. As we gain momentum, we are mapping a range of positive RevPAR growth trajectory. We will continue to issue monthly occupancy press releases. So you see our progress in a timely manner. The fierce competitive workforce environment will put near-term pressure on our margin, but we expect this will be transitory and then our margins will improve in 2022.

At Brookdale, we provide clinically needed support to help manage the challenges of aging. And I strongly believe in the need for senior housing and care more than one in four seniors are at risk for social isolation and the increased risk of dementia, stroke and heart disease that comes with it. Our communities help satisfy seniors' desires for engagement, social and emotional wellbeing and we know the power of community. Brookdale is ready to meet seniors, where they are, whenever they need us. We are the senior living provider of choice with the experience and expertise to help seniors thrive.

With that, I'll turn the call over to Steve.

Steve Swain -- Executive Vice President & Chief Financial Officer

Thank you, Cindy. There are three key takeaways related to our financial results.

First, RevPAR growth improved on a sequential basis. We outpace the industry in occupancy growth, while maintaining RevPAR. Occupancy inflicted positive earlier in the year than we expected. This momentum is a good sign as we enter the third quarter, which historically delivers the strongest quarterly sequential occupancy growth. Consistent with our pricing strategy, we were able to maintain RevPAR on a sequential basis, while using targeted discounting in select competitive markets. Second, opex. With high resident vaccination rates and fewer COVID-19 cases in our communities and-versus the first quarter, we were able to significantly reduce COVID-19 costs, both on a year-over-year basis and sequential basis. As Cindy detailed, they intensely challenging labor environment, largely offset this benefit. Third, liquidity. With the completion of the sale of our healthcare services segment on July 1, we have incrementally strengthened our liquidity position.

Now, let me provide some context for these highlights, starting with occupancy. This is the first time occupancy grew every month in the quarter since 2019. Second quarter weighted average occupancy was 70.4% up 90 basis points from the first quarter on the same community basis. RevPAR or rates was 4.2% better on a year-over-year basis driven primarily by our annual price increase at the beginning of the year. On a sequential same community basis, we saw rate increase slightly. The annual increase and maintaining rate discipline that through the year helps us cover some of the extraordinary costs related to the pandemic.

Turning to operating expenses. On the same community basis, the second quarter senior housing operating expense improved 6.1% year-over-year and was slightly favorable sequentially. The primary driver of the favorability was a reduction of COVID-19 costs of approximately $45 million on a year-over-year basis and $17 million on a sequential basis. Excluding COVID-19 costs, labor expense increased sequentially, primarily due to the difficult labor environment as we use contract labor and overtime to mitigate open community positions along with seasonal increases from an extra workday and the annual merit increase. For other operating expenses, excluding COVID-19 costs, the sequential increases were due to higher insurance related expenses along with incremental marketing investments to help win the recovery.

Healthcare services operating results were included in the consolidated second quarter report. With the transaction completed on July 1, going forward, the segment will be removed from consolidated results and the $306 million of net cash proceeds will be reported as net cash provided by investing activities.

Turning to G&A, excluding transaction costs and non-cash stock-based comp, the second quarter increased both year-over-year and sequentially was from higher short-term incentive accruals as we gained occupancy earlier than we expected. G&A expense will be lower in the third quarter as we see the reduction in costs related to healthcare services associated to transition with the sale of that business. Adjusted EBITDA for the second quarter was $33 million compared to $45 million for the prior year quarter. The impact of lower senior housing NOI due to the pandemic was significantly mitigated by the benefit of the negotiated cash rent reductions. This highlights both the need and benefit of last year's win-win agreement with Ventas.

Adjusted free cash flow was $168 million lower in the second quarter compared to the prior year period. The largest driver of the difference was due to the CARES Act. $146 million was related to the prior year quarter, when we received $85 million of Medicare Advanced Payments accepted $34 million Provider Relief Fund grants and benefited from $27 million of deferred payments under the payroll tax deferral program. In addition for the current quarter, there was a $14 million use of cash for the initial repayment to the Medicare Advanced Payments program. In the second quarter, non-development capex was $14 million higher than the prior year as we continue to make investments across our communities as planned.

Turning to the third key highlight, liquidity. As of June 30, total liquidity was $388 million compared to $439 million as of March 31. The change was primarily from the impact of adjusted free cash flow. On July 1, net proceeds from the sale of our healthcare services business would add $306 million to the quarter end liquidity.

To wrap up, let me share some directional financial expectations for the third quarter. With recent occupancy trends, we expect sequential growth in the third quarter to accelerate. We expect RevPAR to be flat to slightly down based on the competitive nature of the lease up environment in the industry. We will continue to monitor market rates and adjust as necessary. With our occupancy and rate expectations, RevPAR sequential growth could accelerate to nearly double the percentage growth of the second quarter. With the intense labor market competition, we expect higher costs from contract labor and overtime, along with the seasonal extra day and extra holiday in the third quarter.

For other operating expenses, we also expect higher marketing investments to help us drive accelerated occupancy gains along with higher seasonal costs, such as utilities. G&A expense will be lower as the healthcare services associates' transition to HCA Healthcare. Because we expect to provide transition services in connection with the sale, it will take time to see the full indirect expense benefit.

Turning to other key drivers of adjusted free cash flow. Annual non-development capex investment is expected to remain at approximately $140 million for 2021. And we will book approximately $5 million of state tax expense related to the healthcare services sale in the third quarter.

Looking longer-term, we remain confident in the growth opportunity of our business based on three key drivers. First, demand. Demand for our communities is returning, we are firmly on the path to recovery and gaining momentum. A notable increase in the senior population is beginning and nearly 65% of the target population lives within 20 minutes of a Brookdale community. Second, new supply has dropped dramatically and this will provide us a positive tailwind for the next several years. Finally, there is demand for high quality needs based services due to a significantly higher presence of chronic conditions and overtime, fewer unpaid caregivers. Importantly, our community associates have the skills and desire to provide these services. With this solid foundation for growth returning just to 2019 pre-pandemic occupancy and margin levels would drive over $300 million of additional NOI.

I will now turn the call back over to Cindy.

Cindy Baier -- President & Chief Executive Officer

Thank you, Steve. In summary, the completion of the HCA Healthcare transaction has strengthened our liquidity position, as we continue to have an ongoing interest in a growing home health and hospice business. Our senior living business has delivered five months of consecutive occupancy growth and in the second quarter, we outperformed the industry sequential occupancy growth.

I remain optimistic as we enter the third quarter, which historically has been the highest occupancy growth period of a year. Over the past three years, including the recent healthcare services transaction, we have made significant transformational changes to reshape our business. We are in a better position to capture a larger share of the robust silver way of senior demographic demand and drive meaningful shareholder value.

Operator, if you would open the line for questions. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Josh Raskin from Nephron.

Cindy Baier -- President & Chief Executive Officer

Hi, Josh.

Josh Raskin -- Nephron -- Analyst

Hi, good morning, not good evening. So good morning. So my question-I guess, firstly, I just want to follow-up on Steve's comment, I heard the 2019 occupancy levels if we were returned, there would drive $300 million of additional NOI. Could you just help us understand what that means and what that's relative to? Is that relative to the $30 million, $32 million run rate that we saw in the quarter or what exactly was that intended to say?

Steve Swain -- Executive Vice President & Chief Financial Officer

Good morning, Josh. That's generally what the basis is. So kind of a run rate close to $500 million or so and then plus $300 million is $800 million ballpark.

Josh Raskin -- Nephron -- Analyst

Okay, OK. So actually what you're saying, is it's still $800 million. So you think that's what the current situation, the pressures, et cetera. And I assume that means labor normalizes or something like that. My question, how should we think about the risk and I hate to be the downer on the party here. But how should we think about the risk of community closures and the potential for stopping move-ins? And maybe you could just remind us the metrics that the states were using last spring and what triggers sort of that decision for a state to act and stop move into. And then I don't know if there's any specific internal Brookdale rules that you guys have in place or rules of thumb, where you start thinking about community closures.

Cindy Baier -- President & Chief Executive Officer

Sure. Josh. There's no question that the Delta variant is challenging, but what's different today than at the beginning of a pandemic is that we have added highly effective vaccine star strategy to help protect residents and associates. Throughout the pandemic, we've been able to demonstrate our ability to balance safety and engagement. And as a conclusion of over 2,000 vaccine clinics, 93% of our residents received the vaccine. So, we are building on the steps that we've already taken with a vaccine requirement for our associates with limited exception. Given the widespread access to the vaccine, we're in a much better position to handle the pandemic. Now what we see is that because of all of these things, even if there is a COVID-19 positive resident case, we have protocols in place in many cases to remain open to new move-ins. So I think that we're monitoring it carefully, we have strong infection control protocol and we're proceeding accordingly.

Josh Raskin -- Nephron -- Analyst

I guess, I mean, I was thinking more about when the state acts and says, because I think if you look back a year, year and a half ago, it was measurements of ventilators that were available, ICU bed capacity or even hospital occupancy levels and that sort of stuff. So I think some of it is kind of out of your hands, but it sounds like, and do you think even if Delta continues to rise, because of the vaccinations and the protocols you have in place. It sounds like you don't envision a scenario where Brookdale communities are actually closing.

Cindy Baier -- President & Chief Executive Officer

I'm not saying that we'll never have a Brookdale community closed. I want to be clear about that, that's possible. But what I'm saying is the risk profile is significantly different today, given the high vaccination rates of our associates and the fact that the vaccines are highly effective at preventing severe illness and hospitalization. So, we'll work with our local health department, of course, to make sure that we're doing everything that we can to help protect our residents and associates. But what we have seen and what we've heard in the industry is that the health departments are comfortable with the safety protocols that we have. And they take that into consideration, when deciding whether a community needs to close or reopen. And that is different than a year ago, in the regard, that a year ago, the residents didn't have access to the vaccine. And so that's a very big change. And I think the health department appropriately recognizes that and we are continuing all of the safety protocols that we put in place during 2020 with hand washing and social distancing and masking. And now our continued focus on vaccines to really help keep our residents as safe as we can as well as our associates.

Josh Raskin -- Nephron -- Analyst

Perfect. Thanks.

Cindy Baier -- President & Chief Executive Officer

Thank you.

Operator

Your next question comes from Tao Qiu, Stifel.

Cindy Baier -- President & Chief Executive Officer

Good moring, Tao.

Tao Qiu -- Stifel -- Analyst

Hey, good morning. Thank you for having me on the call. Congrats on the new confusion of the vaccine clinics, which is very reassuring and like the spread of the Delta variants. My first question is regarding the 3Q outlook. I think, Steve, you mentioned sequential increase to a doubling of 3Q, what are you referring to occupancy operating income? I missed that part.

Cindy Baier -- President & Chief Executive Officer

Yes. Before Steve answers, I'm going to just ask everybody on the call, I hope you've gotten vaccinated. I hope you've got your family vaccinated, your friends vaccinated. Together, we can really stop COVID, if we really focus on vaccination. Steve?

Steve Swain -- Executive Vice President & Chief Financial Officer

You bet. So Tao, I was talking about RevPAR sequential growth in the first and second quarter that was 1.7% RevPAR growth and as I mentioned, if I could nearly double and from the second quarter and the third quarter.

Tao Qiu -- Stifel -- Analyst

Got you. So the month-on-month acceleration in occupancy is impressive. Could you talk about the leading indicators you're seeing right now that may have contributed to that improved outlook?

Cindy Baier -- President & Chief Executive Officer

We are definitely seeing an increase in inquiries and leaves and visits as well as conversion. So all of those things are coming together to result and improvements and our move-ins on a sequential basis. So we feel like the environment is improving. We feel like our sales transformation efforts are gaining momentum. We think that the marketing investments that we've made are great and we are just so proud of the fact that our July occupancy in a single month built almost as much occupancy as the entire second quarter.

Tao Qiu -- Stifel -- Analyst

Got you. And the second part that was on the RevPAR, I think it came in more resilient than I had expected given the broader discounting environment with generally seeing right now, especially in the low acuity products. Could you maybe expand a little bit on your comment regarding dynamic pricing? How the factors driving the price decisions similarly different compared to apartments or logging?

Cindy Baier -- President & Chief Executive Officer

Absolutely. We are proud of our RevPAR growth on a year-over-year basis and have maintain pricing discipline. We operate in 41 states. We've got a variety of community types and competitive environment is different in every single community. You know that our industry has more than 2,500 different operators. And so, our pricing strategy has to be local and it has to reflect the occupancy of our communities, the competitive environment that we're seeing, as well as our ability to move in as many residents as possible at the highest achievable rate. And so we're constantly balancing the rates that we have in a local market, our discounting strategy, and looking to see whether changes in pricing would accelerate our RevPAR growth. And that's something that I think the team is just very focused on.

Tao Qiu -- Stifel -- Analyst

So did you develop that dynamic pricing mechanism in house or are you using any third party products?

Cindy Baier -- President & Chief Executive Officer

We are not using third-party products.

Kathy MacDonald -- Senior Vice President of Investor Relations

Hey, Tao, I wanted to give enough time for the other analysts so we can follow-up with you after the call.

Tao Qiu -- Stifel -- Analyst

Okay. Sounds good. I mean, just one last question from me, the $14 million equity earnings from consolidate investment, is that related to the sale off the [indecipherable].

Steve Swain -- Executive Vice President & Chief Financial Officer

I believe so. I'll-I can't comment on that. So your last remaining part of the JV, correct.

Tao Qiu -- Stifel -- Analyst

Okay. Sounds good. Thank you and congrats.

Cindy Baier -- President & Chief Executive Officer

Thanks, Tao.

Operator

Your next question comes from Brian Tanquilut from Jefferies.

Cindy Baier -- President & Chief Executive Officer

Hi, Brian.

Brian Tanquilut -- Jefferies -- Analyst

Hey, good morning. Yes, first question, Cindy, just to clarify on the vaccination rates to Josh's question earlier. So it looks like your residents are highly vaccinated in the 90% plus range. And then you said the majority of associates are, but are you putting out a mandate now on vaccination? And are you able to use that maybe from a marketing perspective? And then I guess the flip side of that, are you concerned that this could drive some increased employee turnover, if you are mandating vaccinations.

Cindy Baier -- President & Chief Executive Officer

Yes. Our Northstar is the health and well-being of our residents and our associates. And we have been focused over, oh gosh, since before the vaccines were even available on education, about the importance of vaccines, we've made our vaccines readily available for our residents and associates, and our residents led the way. I mean, 93% resident vaccinations just incredible. We have seen a large majority of our associates get vaccinated, but we think with the spread of a Delta variant, it's really time to take the next step and to require our associates to get vaccinated. Now, of course, there will be limited exceptions, including medical and sincerely held religious beliefs. And there are some jurisdictions where we cannot require our associates to get mandated, but we think it's really important for the trust of our residents and their families. So we do think we'll be talking about with prospects as to our communities.

I hope that we don't lose a single Brookdale associates, but I do recognize that not everyone is going to agree with the decision that we made to require vaccinations. And so we will be proactive about providing education to associates to understanding, where they're coming from to working through the process on medical and religious accommodation. And if necessary, we will bring additional associates into the Brookdale family, because our objective is to have our community staff with full and part-time associates and we want them to be vaccinated.

Brian Tanquilut -- Jefferies -- Analyst

I appreciate that. And then, I guess, on the cost side, Cindy, as we see Delta pick up, are you thinking of ramping up testing or preparing to ramp up the testing and ramp up PPE use just as the infection rates across the country are picking up right now.

Cindy Baier -- President & Chief Executive Officer

Yes. We have masking requirements in our communities for our associates. And so that's been in place since the beginning of the pandemic and there are state and local requirements as it relates to testing. Now that's largely focused on vaccinated individuals. So to the extent that we are having an increasing percentage of our associates and residents vaccinated, those testing costs are not necessarily something that would increase as much. But of course it's going to depend on whether we have a positive case in the community. And if so, that will involve more testing. But I feel like we've got the right strategy in place. We're taking the appropriate steps to manage effectively through the pandemic with the prioritization of the health and wellbeing of our residents and associates.

And quite honestly, if you think about our medical costs with our healthcare plans, the more of our associates that we get vaccinated that should help us over the longer-term as well. Do you want to add anything?

Brian Tanquilut -- Jefferies -- Analyst

Sorry, go ahead.

Steve Swain -- Executive Vice President & Chief Financial Officer

Yes, Cindy. The COVID-related expenses from second quarter, third quarter, kind of pre-delta variant, we expect it to go down slightly. As Cindy mentioned, there's-there are unknowns. So to the extent it doesn't go down quite as much as it was in the projection-my projection is to be seen.

Cindy Baier -- President & Chief Executive Officer

Thanks, Steve.

Brian Tanquilut -- Jefferies -- Analyst

Got it. And then Steve, since I got you just last question for me, but we've gotten some questions about your 2023 maturity. So just wondering if you can make any comments on your debt refinancing strategy going forward.

Steve Swain -- Executive Vice President & Chief Financial Officer

You bet. So looking big picture, we strengthened our liquidity position by over $300 million on July 1 after closing the healthcare services transactional HCA. And we're evaluating potential uses of that cash, such as de-leveraging some communities as we refinance their 2022 maturities, perhaps a small pay down of a higher interest rate debt or targeted investments to accelerate growth. We continue to focus on enhancing liquidity through occupancy growth and expense discipline. At the same time, we're pursuing provider relief fund grants. So overall, cash flow and liquidity are a priority and we'll continue to take proactive steps on the balance sheet while evaluating opportunities and executing that a core business.

Brian Tanquilut -- Jefferies -- Analyst

Awesome. Thank you.

Cindy Baier -- President & Chief Executive Officer

Thank you so much.

Operator

Okay. Your next question comes from Steve Valiquette from Barclays.

Cindy Baier -- President & Chief Executive Officer

Hi, Steven. How are you doing?

Steve Valiquette -- Barclays -- Analyst

Great. Good morning, everybody. Thanks for taking the question here. This was touched on a little bit earlier, but just as far as the July occupancy trends pretty encouraging, but as we do dig in a little bit deeper on your geographic mix Texas, Florida, and California are the three largest states for Brookdale on number of units. Those states are seeing a lot of the new COVID cases where it's most prevalent or at least in two of those three states for sure. Just I'm just curious as you analyze your own occupancy gains, are you seeing any correlation of better gains in states where there's fewer new COVID cases and is it perhaps a little slower where the-those new cases are more prevalent by state. Any trends were calling out or is there really no correlation? Just curious to get some additional observations around that. Thanks.

Cindy Baier -- President & Chief Executive Officer

Yes. Thanks for the question. I think we've seen the growth in COVID cases is largely among unvaccinated individuals and a much younger population than we thought during 2020. I don't know that we have seen any correlation between increasing COVID trends and our occupancy trends. I think the important thing to remember is that we are a needs driven business. And so where we have seen the outperformance is really in our memory care communities in particular, their performance during the second quarter was absolutely phenomenal. And we've had a strategic focus there, which helps of course. And then, what we've seen softness in is really independent living and that's something I think is across the industry as well. But I don't think it's related to the surge in the delta variant.

Steve Valiquette -- Barclays -- Analyst

Okay. So at the end of the day, it's more related to product offering than any geographic mix. Okay. Just wanted to reinforce that. Thanks.

Cindy Baier -- President & Chief Executive Officer

Thanks, Steven.

Operator

Your next question comes from Joanna Gajuk from Bank of America.

Cindy Baier -- President & Chief Executive Officer

Good morning, Joanna

Joanna Gajuk -- Bank of America -- Analyst

Hey, good morning. Thank you for taking the question here. So if I may just follow-up a couple of these things that have been discussed. So one is on the-on labor side, we see a lot of commentary from different providers thought pressure they're equally highlighted you expect some continuation of this contract labor pressure at least in the near-term. So can you kind of confirm that what you see in the market and also how do you think about going forward? Do you think that once like you mentioned, do you saw supplemental benefits, unemployment benefits expired, and it's going to be somewhat easier to still recruit and can you talk about any turnover -- are you seeing well higher turnover? Are you seeing in different markets?

Cindy Baier -- President & Chief Executive Officer

Yes, sure. I felt it was covered by the news. The labor market is fiercely competitive and we have increased our recruiting efforts to fill open positions. But when we had an opening, we do use overtime and contract labor as necessary. And of course, we actively adjust wages to remain competitive. Looking forward, we do expect that the labor market will improve gradually as people return to work after the supplemental unemployment benefits end and as schools reopen. So I think that's important to note. So I think all of the things that you've talked about, yes, we see it, we have experienced it. We think it will continue into the third quarter, but we overarchingly believe that the labor market will return to more of a normal level in the not too distant future.

Joanna Gajuk -- Bank of America -- Analyst

Okay, that's helpful there. And I guess to that end, are you seeing-can I increase interest from applications and whatnot or inquires for jobs in senior housing? I don't know. There are some-maybe some shifts interest people moving say from nursing homes or elsewhere higher acuity settings to senior housing, any of that it's happening.

Cindy Baier -- President & Chief Executive Officer

The quarter has been a little bit of a roller coaster, right. I think particularly early in the quarter, we didn't see as much interest in our postings when there was an economic incentive to stay on unemployment and there were just massive increases in jobs available in the economy. I do think more recently we've seen increased interest in our postings. And so that's something that we're encouraged about. I think the one thing that our industry offers that few others do is that when an associate goes home after a day at Brookdale know that they've made a difference in someone's life. Most employers can't offer that. And so we really do attract a workforce that genuinely wants to make a difference and genuinely wants to be part of something bigger than themselves. And when you remove the barrier of supplemental unemployment benefits, moms who had their kids at home and aren't in school, and some of the concerns around the COVID-19 variant that the vaccine helps solve, it's much easier to operate a business.

Joanna Gajuk -- Bank of America -- Analyst

Thank you. Appreciate it.

Cindy Baier -- President & Chief Executive Officer

Thanks, Joanna.

Operator

Your next question comes from Frank Morgan from RBC Capital Markets.

Cindy Baier -- President & Chief Executive Officer

Good morning, Frank.

Frank Morgan -- RBC Capital Markets -- Analyst

Good morning. Most of might have been answered, but just a couple of random ones here, going back to the mandatory vaccine. I think you mentioned there's some states where that would not be allowed. Do you-could you share with those-share with us what states those are that will not allow you to enforce mandatory vaccines for employers?

Cindy Baier -- President & Chief Executive Officer

So Oregon comes to mind. There are a few states, but top of mind for me is Oregon. We can follow-up with the list with you separately.

Frank Morgan -- RBC Capital Markets -- Analyst

Got you. Okay. And then I guess I would just be real curious from what you're seeing out in the field, when you look at your competitors during this period where people are coming back out and move-ins are improving. Any change in their behavior regarding pricings or incentives and how do you think they will actually handle the surge in COVID and what do you think? Are you hearing the other providers out there or considering doing the mandates for vaccines as well?

Cindy Baier -- President & Chief Executive Officer

Yes. I will say that the environment is pretty competitive and because we've got 2,500 competitors and many operates five or fewer communities. We see just about everything that you can imagine. Some of the things that we see quite honestly, we don't think are sustainable. And so that is something that I think we're taking the strategy that we think will yield the best results and the longest-term on a sustainable basis. And we're really proud of the fact that we had such strong occupancy growth outperforming the industry in the second quarter while being able to maintain rate discipline. I do think that a number of people in our industry are going to move to a mandate, a vaccine mandate. And we're seeing that already in healthcare overall, if you look at the statements that have come out from the American Physicians Association, the American Nurses Association, and all sorts of leading healthcare institutions, people recognize that vaccines are important and more and more healthcare system, hospital systems are taking that step to help protect their associates as well as their patients and residents.

Frank Morgan -- RBC Capital Markets -- Analyst

Maybe last -- one last one, just in terms of geographic markets, any particular areas where you're seeing things getting better at a faster rate than average and then by the same token anything, any markets where it's lagging. Thanks.

Cindy Baier -- President & Chief Executive Officer

I don't know that there is anything that I would say that just jumps out on a market basis. I think that what we tend to see is that our communities that have leadership teams that have been placed, tend to recover quickest. We know in particular at Brookdale, if an Executive Director has been with us two years or more, they tend to perform better. And so we've got about two-thirds I think 65% of our Executive Directors who've been with us for at least two years in our community. And that's really where we see the fastest recovery. And of course, if you go back to our memory care communities, they are just performing incredibly well during the recovery. And so, where we have a higher concentration of memory care communities, we are performing better. Okay.

Are there any more questions, operator?

Kathy MacDonald -- Senior Vice President of Investor Relations

I think that's it. So, thank you for your interest in Brookdale and joining us this morning.

Operator, you can now close the call.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Kathy MacDonald -- Senior Vice President of Investor Relations

Cindy Baier -- President & Chief Executive Officer

Steve Swain -- Executive Vice President & Chief Financial Officer

Josh Raskin -- Nephron -- Analyst

Tao Qiu -- Stifel -- Analyst

Brian Tanquilut -- Jefferies -- Analyst

Steve Valiquette -- Barclays -- Analyst

Joanna Gajuk -- Bank of America -- Analyst

Frank Morgan -- RBC Capital Markets -- Analyst

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